Understanding the recent increase in company size thresholds

In a move to support businesses, the UK Labour government has recently confirmed an increase in the company size thresholds that define micro, small and medium companies, reporting under the Companies Act 2006. 

This change will help more companies qualify for exemptions from certain reporting and auditing requirements, with a start date of 6 April 2025, effectively meaning accounting periods ending 31 May 2026 at the earliest, with transition measures to allow companies to compare prior years on the same rules. Remember, the two year rule! These new thresholds also apply to limited liability partnerships (LLPs).

New thresholds

A company has to breach 2 out of the 3 thresholds, for 2 consecutive years.

The increase in the company size thresholds is aimed at encouraging business growth and reducing the compliance costs that many smaller firms struggle with. By raising these limits, the government is giving companies more room to expand without being immediately subject to more complex and expensive regulatory measures, benefiting from reduced regulatory burdens, and may benefit from reduced financial reporting requirements, and reduced non-financial disclosure requirements within their financial statements, impacting the Directors’ report and the strategic report; where this was once necessary.

The shift in thresholds has been widely welcomed by business groups, as it will likely stimulate growth, job creation, and entrepreneurship across the country. It also provides an opportunity for businesses to focus on long-term sustainability and strategy, rather than being weighed down by onerous compliance requirements.

What does it mean for audits?

Generally, small and micro companies do not require an audit and can claim audit exemption. Meaning, those medium companies under the “old” thresholds will now fall into the small company regime and will be able to benefit from the audit exemptions available and may choose to prepare reduced disclosure financial statements. 

Remember, if your company (or LLP) currently has an audit, the reasons behind needing one or choosing to have one – will most likely remain. For example, being part of a large group or being required by your bank or shareholders, or other internal reasons for which you chose to have an audit. 

Choosing to claim audit exemption in the future may well reduce your compliance fees somewhat, but it will not be that simple. It is worth weighing up how that exemption can impact your business. An audited set of financial statements is a lot more attractive than an unaudited set for investors, stakeholders – such as banks or lenders, suppliers and customers. An audit also gives peace of mind and educates the business owners. If you are you considering a future sale or restructuring – does the benefit of having an audit outweigh the reduced compliance fees?

David Halkett – Business Services Director

Get in touch 

Dafferns are here to talk to you about these changes in thresholds and help you decide what the best options are for your business. If you have any questions, please get in touch with myself or your audit partner.